You haven't been paying attention to the maths. The tax aspect skews the decision in favour of the annuity.Having $300m cash on hand is way different than having $30m in cash dribble in over time.
I really don't understand why anyone wouldn't take the lump sum when you are in family office territory. This idea that the annuity is safer is a joke, you are going to be able to invest in a wider variety of things with your own family office anyway.
I suppose if you don't trust yourself with money maybe dribbling it out might make sense but probably not.
You haven't been paying attention to the maths. The tax aspect skews the decision in favour of the annuity.
If you had a guaranteed annuity for 20 years then you could just as easily borrow the money to "use right away in a productive manner". The interest rate on the loan would likely be less than the tax rate on the lump sum and tax deductible too.I would take the lump sum because I think I could put the funds to use right away in a productive manner.
Have you not seen the maths in this thread?Why exactly would an annuity attract less tax than a lumpsum? Is it the differential tax rate thing?
Have you not seen the maths in this thread?
That is a lot of typing just to declare that you have no intention of reading anything earlier.Don't you see how my question ties in with the math on this thread?
eta: You do realize that clearly answering the question would have taken no more effort than what you chose to expend your time and energy typing, don't you? Assuming you are clear about this, in your own head, of course. And if you aren't clear, or if you're clear but disinclined to clearly and briefly answering a very clear and very brief question, then not answering would have taken even less time and energy. But of course, you do you, per usual.
psion10 may have already cleared this up, but let me say it another way.Why exactly would an annuity attract less tax than a lumpsum? Is it the differential tax rate thing?
That is a lot of typing just to declare that you have no intention of reading anything earlier.
Just for you, I will point out that if we assume a rate of return of 3%, a $20M lump sum would be worth about $1.3M annually over 20 years or about $900,000 annually AFTER TAX. To get the same annuity from a lump sum that has already had tax take from it, you would have to get something like triple the rate of return which is risky.
My answer assumed the worst case scenario where both the lump sum or annuity would put you in the top tax bracket. As I showed, the scales tipped in favour of taking the annuity.That edit was an afterthought, and put in only to draw your attention to the fact that you were (probably habitually, probably unthinkingly, and entirely unnecessarily) being an ass; and, by drawing your attention to it, to give you the opportunity to correct that if you so choose.
psion10 may have already cleared this up, but let me say it another way.
If you take the lump sum, you can only invest what's left after paying taxes. In contrast, the lottery operator can invest the whole amount. So you either have to make much more risky investments than the lottery operator or be much better at investing than the professionals who invest billions of dollars.
Nothing to do with different tax rates.
(All this is for big wins on state lotteries in the States. Small wins could involve different tax rates.)
My answer assumed the worst case scenario where both the lump sum or annuity would put you in the top tax bracket. As I showed, the scales tipped in favour of taking the annuity.
Actually, even if the annuity put you in a lower tax bracket, the situation would remain exactly the same. You would still want whatever you invested your (after tax) lump sum in to generate the same annuity as you would otherwise receive whether this is before tax or after tax.
I also indicated that even if you had a sizeable investment that you wanted to make, you might still be better off borrowing against the annuity than taking the lump sum. When rich people want to buy another mansion, they don't cash out their stock holdings which would attract capital gains tax and cause them to lose the income their stocks generate. They borrow the money instead.
I am not making that many assumptions (although the actual numbers may vary).There's loads of assumptions baked in there, that may or may not hold.
is just a pretty good statement in general. (Admittedly, I've mostly only spent time in Sydney.)Australia seems a great place ...
psion10 may have already cleared this up, but let me say it another way.
If you take the lump sum, you can only invest what's left after paying taxes. In contrast, the lottery operator can invest the whole amount. So you either have to make much more risky investments than the lottery operator or be much better at investing than the professionals who invest billions of dollars.
Nothing to do with different tax rates.
(All this is for big wins on state lotteries in the States. Small wins could involve different tax rates.)
For example, if the annuity investments are by default kept in a high risk investment model and you are risk-averse, you might be happier to take the lump sum and invest it yourself in lower risk investments, with a smaller but safer annual income.
Interesting about the annuity that grows by 4% per year for 30 years.Both Business Insider and Money magazine say that taking the lump sum is the better option if your investments can yield a modest return of about 3% or greater:
https://www.businessinsider.com/sho...or-the-lump-sum-if-you-win-the-lottery-2013-9
https://money.com/powerball-lottery-annuity-or-lump-sum/
ETA: "Best" is defined as making the most money through investments even if you take some of it out to spend.
If you had a guaranteed annuity for 20 years then you could just as easily borrow the money to "use right away in a productive manner". The interest rate on the loan would likely be less than the tax rate on the lump sum and tax deductible too.
I think you were joking, but that's actually what some (well, at least one) financial advisors recommend. Take the lump sum and use it to purchase an annuity that offers a better return than the government bonds that the Powerball lottery uses.Obviously the best choice is to take both the lump sum payment and the annuity. You get more money that way.
Blanchett advises winners to do a "combination of both an annuity payout and a lump sum." Based on this advice, winners would take the cash prize and then purchase their own annuity through a private company. By purchasing their own annuity, there's the possibility of a higher return.
Last time someone gave me $10M I 10x'd it in 4 years.
How? Put the money to productive use by creating a company and selling it for 10x the investment 4 years later. It's now a business unit of Microsoft.
This is why I'm saying the world looks differently if you know what to do with the capital. A few hundred million into my own hedge fund would give returns a lot better than some annuity.
And what do you think the odds are of the average lottery winner coming close to this feat?![]()
PS: Maybe you should buy the forum for a new hobby?
After I win the Powerball drawing Monday night, I am going to hire a good attorney and contact my financial advisor. I am going to tell them what I want to do then I am not going to worry about taxes and investments.
If your own hedge fund can give a rate of return that is more than double or triple the rate of return assumed by the lottery fund when they calculate the annuity then lump sum is the way to go.A few hundred million into my own hedge fund would give returns a lot better than some annuity.
I suppose that if you want to give a non-answer to the question that was asked you could say that.How about, winning the lottery is a good problem to have. Either way you're rich. Whether you want to take it all at once or a little bit over time is up to personal preference.